Wednesday, July 31, 2013

Massachusetts Appeals Court holds that short-term can be of indefinite duration

My last post discussed Central Mut. Ins. Co. v. True Plastics, Inc., 84 Mass. App. Ct. 17 (2013), in which the Massachusetts Appeals Court addressed whether Sanchez, an employee of a staffing agency, was a temporary employee or a leased worker of the company to which she was assigned, True Plastics, Inc.  If she was a leased worker then, as discussed in my last post, the liability policy issued to True Plastics by Central Mutual would not provide coverage.  If she was a temporary worker, however, the policy would provide coverage.  

The policy defined "temporary worker" as a person furnished to meet "short-term workload conditions."  The policy did not define short-term workload conditions. 

In a decision that invites insurance fraud, the court held that the only consideration in determining whether a person was furnished to meet short-term workload conditions is what the employer intended at the time the worker was hired.  "Even if a worker's assignment ends up being lengthy, he or she will still be a 'temporary worker' within the meaning of the policy, provided the insured held an objectively reasonable expectation at the time that the worker was furnished [that the worker was hired] to meet a short-term workload condition. 

Central Mutual argued that "short-term" workload conditions cannot be indefinite.  The court disagreed, and held that a short-term workload condition need not be of finite duration. 

The court held that True Plastics had met its burden of proving that Sanchez was furnished to meet a short-term increase in its workload. 

Monday, July 29, 2013

Massachusetts Appeals Court provides guidance on burdens of proof

I posted here about the Massachusetts Superior Court decision in Central Mut. Ins. Co. v. True Plastics, Inc., 2009 WL 2603151.  In that case the Superior Court held that whether or not a worker was a leased worker, in which case there would be no insurance coverage pursuant to a general liability policy, or a temporary worker, in which case there would be coverage, was a disputed issue of fact.  It denied summary judgment to both sides. 

Sanchez was injured while working on the premises of True Plastics, the insured. She was an employee of Dynamic Staffing, Inc., a company in the business of placing its employees at client companies.

After that decision the case went to trial as a "case stated," which essentially means that stipulations and agreed-upon evidence was submitted to the judge for a decision.  The judge ruled in favor of True Plastics.  Central Mutual appealed.  In Central Mut. Ins. Co. v. True Plastics, Inc., 84 Mass. App. Ct. 17 (2013), because of the procedural posture the Massachusetts Appeals Court gave no deference to the trial judge's findings.

The court noted that the definition of "employee" that was referenced in the employer's liability exclusion had two parts.  The definition stated that leased workers are employees (and therefore excluded from coverage under the employer liability exclusion).  "Because this provision expands the universe of persons excluded from coverage, the insurer has the burden of proving that a person falls within its scope." 

The definition of "employee" excluded from its definition temporary workers.  Read in the context of the employer liability exclusion, temporary workers were an exception to the exclusion.  True Plastics therefore had the burden of proof that Sanchez was a temporary worker. 

The court thereby touched on a thorny problem. While it is axiomatic that an insured has the burden of proving that coverage is triggered, the insurer has the burden of proving that an exclusion applies, and the insured has the burden of proving that an exception to an exclusion applies, frequently the policy clause that determines coverage is not found in an exclusion or an exception, but a clause that may be "exclusion-like" or "exception-like" (my terms).  Or sometimes a coverage clause is phrased in such a way that certain occurrences are not exactly "excluded" from coverage, but are left out of the definition of coverage.

Although the issue the court was dealing with here was more straightforward, its analysis is phrased in such a way as to help with the harder issues:  An insured has the burden of proof on a policy clause that expands coverage, whether that clause is in an insuring clause,  an exception to an exclusion, or elsewhere the policy.   An insurer has the burden of proof on a policy clause that contracts coverage, whether that clause is in an exclusion or elsewhere. 

Wednesday, July 24, 2013

Welcome to the 188th Cavalcade of Risk

 I am honored to be once again hosting the Cavalcade of Risk, a round up of risk-related posts of all sorts from around the blogosphere.

In reviewing the submissions for this cavalcade, I was struck by their technical and detailed nature.  I learned from the posts about the history of health insurance in China, how the MTA in New York City is planning for the next storm surge, and who serves on the Massachusetts Board of Registration in Pharmacy. Thank you to all participants for sharing your wealth of knowledge. 

The mechanics of insurance fraud, and of fighting insurance fraud 

At the blog "From Bob's Cluttered Desk" Robert Wilson describes in his post "An Engaged Carrier Can Improve Care While Lowering Pharmacy Costs how a worker's compensation carrier worked together with physicians and state government to reduce prescription drug abuse and save money.

In Employer Fraud is the Wrong Way to Reduce Workers Comp Costs, Michael Stack at the Workers Comp Resource Center states many ways that employers try to cheat the workers compensation system, and what the consequences are of such fraud. 

The mechanics of Obamacare . . .

In Delaying the employer mandate has little effect on the ACA, the Colorado Health Insurer Insider discusses the details of the employer mandate under the Affordable Care Act (ie, Obamacare).  The post points out that very few employers will be affected by the mandate. 

. . .  And of health insurance in China

Jason Shafrin of Health Care Economist describes the history of Health Reform in China.

The mechanics of providing funding for storm surge losses

Clare Wilkinson writes in the Terms + Conditions blog  about New York MTA in Storm Surge Catastrophe Bond First.   The captive insurer of the New York Mass Transit Authority (MTA) has turned to the catastrophe bond market to strengthen its reinsurance protection. The $125 million catastrophe bond will provide MTA with cover solely for storm surge – a first in the history of the catastrophe bond market.

The mechanics of scams, and the mechanics of helping someone who has been scammed

In Scamster Tricks, Hank Stern, the fearless leader of the Cavalcade of Risk, writes at Insureblog about how he (hopefully) saved a woman from being scammed by a fake health insurance agent.

The mechanics of obtaining life insurance despite a preexisting condition

In Life Insurance with Pre-existing Conditions. Jeff Rose at Life Insurance by Jeff states options for you if you have a preexisting condition and want life insurance. 

The mechanics of regulating pharmacists

At Health Business Blog David Williams argues in Pharmacy Board Needs a Non-Pharmacist Majority that in light of tainted steroid injections originating in Massachusetts that caused many fatalities, the composition of the  Massachusetts Board of Registration in Pharmacy should be changed to include more non-pharmacists. 

The mechanics of insurance coverage for flat tires

In Does Car Insurance Cover Tire Damage, Financial Ramblings posts on when auto insurance does and does not cover flat tires. 

The host of the next Cavalcade of Risk is R. J. Weiss of Weiss Insurance Agencies.

Monday, July 22, 2013

SJC further limits title insurer's duty to defend

Accredited Home Lenders issued a loan, secured by a mortgage, to Karla Brown for her purchase  of a house, and bought a title insurance policy from First American which provided coverage to it and its successors and assigns.  The mortgage was subsequently assigned to Morgan Stanley, of which Deutsche Bank is the trustee. 

Three years after taking out the mortgage loan Brown filed suit seeking to rescind the mortgage and void her debt.  She alleged that she was the victim of a predatory lending scheme, that the defendants unilaterally misrepresented her income to justify higher interest rates and higher monthly payments, and that they coerced her into accepting loans that she could not afford. 

Deutsche Bank requested that First American defend its mortgage interest.  First American denied the claim.

In Deutsche Bank Nat'l Ass'n v. First Am. Title Ins. Co., 465 Mass. 741 (2013), the court examined First American's duty to defend.  It turned to the very problematic decision in  GMAC Mortgage, LLC v. First Am. Title Ins. Co., 464 Mass. 733 (2013), which I discussed (and strongly criticized) here.  That case held that a title insurer, unlike a liability insurer, does not have duty to defend all claims in a complaint against an insured if less than all the claims are covered by the policy.  

In Deutsche Bank the court further ate away at a title insurer's duty to defend.  It held that unlike a liability insurer a title insurer does not have a duty to defend simply because the allegations in the underlying complaint are reasonably susceptible of an interpretation that they state or adumbrate a claim covered by the policy terms.  "Application of this standard threatens to sweep a whole host of uncontemplated risks into the ambit of title insurance.  . . .  To avoid such an aberration, we conclude that a title insurer's duty to defend is triggered only where the policy specifically envisions the type of loss alleged." 

The supposedly new standard stated by the court for title insurers is not new; it is the standard for liability insurance.  There is no duty to defend where a complaint does not allege a covered loss.  That is the meaning of the "state or adumbrate" standard.  It's odd and disturbing that the court does not understand this.

What the court really meant was that even if a complaint states or adumbrates a covered loss, a title insurer does not have a duty to defend if the covered loss is not the main thrust of the complaint.  That was made clear when the court turned to the allegations asserted by Brown. 

The court noted that the policy covers loss or damage sustained or incurred by the insured by reason of the "invalidity or unenforceability of the lien of the insured mortgage upon the title."  The policy provided that First American would defend the insured "in litigation in which any third party asserts a claim adverse to the title or interest as insured, but only as to those stated causes of action alleging a defect, lien or encumbrance or other matter insured against." 

The court held that Brown's allegations did not assert invalidity or unenforceability of the lien.  She alleged the debt should be voided because she was the victim of a predatory lending scheme, and that she was entitled to rescind the security interest and void the loan indebtedness. 

The court held, "Where the substance of Brown's complaint is concerned with the validity of the underlying loan and whether it was procured by a 'predatory lending scheme,' not whether the mortgage was improperly executed, improperly recorded, or otherwise procured by fraud, we conclude that its claims were not specifically envisioned by the terms of the title insurance policy.  Consequently, the allegations of the complaint fall outside the scope of the policy."

In a footnote, the court stated, "We do not construe the complaint to allege that the mortgage instrument itself was forged or that its execution was the product of fraud.  Assuming such a claim had been made in the present dispute, it might have been specifically excluded by Exclusion 3(a), which denies coverage to defects created by the insured."

The court noted that Brown's attempt to rescind the security interest was only a "collateral consequence" of the main relief sought, voiding the loan indebtedness.  "We are aware that, if Brown prevails and her underlying debt is extinguished, this would have the practical effect of dissolving Deustche Bank's mortgage interest, insofar as there would be no debt to secure.  However, given that Deutsche Bank and its predecessors in interest, rather than First American, were in the best position to ensure that the underlying debt was valid, it is for them to bear the burden of any loss."

As a matter of public policy I like the result of this decision.  Predatory lending is a scourge on society, and mortgagees are complicit in its widespread use.  There should not be insurance coverage for claims alleging it.

But the lack of insurance coverage should come from an exclusion, perhaps Exclusion 3(a), referenced by the court, or an intentional acts exclusion or the like.  There is no need to eat away at the duty to defend or to make distinctions without a difference. 

Thursday, July 18, 2013

U.S. District Court applies continuous trigger, holds that under Boston Gas insured is responsible for proportionate share of defense costs

D.N. Lukens, Inc. was a a defendant in several suits alleging harm from exposure to toxic substances owned, supplied, sold or controlled by Lukens.  

While one of the suits, Mastrogiacomo, was pending, the Boston Gas decision was handed down.  In that decision, the Supreme Judicial Court of Massachusetts surprised everyone by holding that long-tail losses would be allocated on a pro rata time-on-the-risk method, instead of by a joint and several liability method.  The SJC also held that the insured will bear a proportionate share of the loss for any time period during the long-tail loss that no coverage is available. 

Utica Mutual Insurance Company, Lukens' insurer, informed Lukens that under Boston Gas Lukens was responsible for its pro rata share of any settlement or judgment because there were periods of time during the risk exposure that Lukens was uninsured.  Utica informed Lukens that it was conveying settlement authority to counsel in an effort to resolve the case prior to trial.

Lukens informed Utica that it believed it was insured for all relevant periods and asked for time to search for additional insurance coverage.  (Such a situation is not unusual in long-tail losses.  That's why everyone should keep copies of every liability policy ever issued to them, forever, in a place where they can be found.  Otherwise, after staff turnover and changes of location and changes of insurance agents and changes of insurers, how will they know what policy they had fifty years ago?)

Utica nevertheless settled the Mastrogiacomo lawsuit for $145,000, and calculated that $14,964 of that amount was attributable to Lukens.  That amount remains unpaid.

Lukens also sought coverage from Utica for asbestos claims filed against it.  Utica agreed to indemnify Lukens for its time on the risk and reserved the right to seek contribution from Lukens for uninsured periods.  Based on that reservation, Lukens sought to take control over the defense in the asbestos cases. 

In Graphic Arts Mut. Ins. Co. v. D.N. Lukens, Inc., 2013 WL 2384333 (D. Mass.), Utica sought summary judgment. 

The court held, first, unsurprisingly, that the injuries alleged were long-tail losses that came within the Boston Gas analysis. 

The court noted that Boston Gas did not resolve the issue of triggers of coverage.  Triggers of coverage determine which policy periods are triggered by a long-tail loss.  There are four basic theories of triggers of coverage: manifestation, injury-in-fact, exposure, and continuous.  Massachusetts courts have declined to adopt a single theory, holding that which trigger applies depends on the circumstances. 

The court held that the continuous trigger method most accurately reflects the reasonable expectations of the insured.  Under that method a loss occurs from the time of exposure to a hazardous substance to the time when physical harm from such exposure becomes manifest.  It also noted that in the case before it the continuous trigger would provide Lukens with the greatest amount of insurance coverage, and implied that that was one reason to apply  that trigger. 

The court then turned to whether Lukens must contribute its proportionate share to the settlement in the Mastrogiacomo suit.  "What is troublesome .. . is the fact that a settlement was reached without  the input or acceptance from Lukens."  The court held that in such circumstances Lukens was not required to contribute to the settlement.  It noted that Boston Gas contemplates the written consent of all parties to the settlement.  It declined to grant summary judgment to Utica on a 93A count arising its actions with respect to the settlement. 

Lukens argued that in the asbestos cases Utica was barred from disclaiming its duty to indemnify because it refused to relinquish to Lukens control over the litigation even though Lukens would be assigned over 60 percent of the indemnity allocation. The court's analysis of the issue was somewhat murky, but it appears to have held that Lukens was not entitled to control the defense but that it was responsible for its proportionate share of the costs of defense. 

The court denied summary judgment on the issue of the actual allocation of loss, on the ground that there was a material dispute of fact over the underlying claimants' exposure to asbestos. 

Friday, July 12, 2013

Mass. Appeals Court holds that GL policy effectively excludes coverage for negligent supervision of driver

Kimberly Pereira, an employee of R. Squared, provided support services to Dennis Pinto, who had been diagnosed with dementia.  Pereira drove Pinto to a restaurant in a car owned by Pinto's wife.  At the restaurant Pereira consumed alcohol and became intoxicated.  She subsequently crashed the vehicle, and Pinto was seriously injured.

Pinto's family sued Pereira, R. Squared, and R. Squared's principals.  The claims included liability under respondeat superior against R. Squared and its principals, and negligent hiring, training, supervision or retention. 

FSIC provided general liability coverage to R. Squared.  It disclaimed coverage on the basis of an automobile exclusion.   That exclusion provided, "This exclusion applies even if the claims against any insured allege negligence or other wrongdoing in the supervision, training or monitoring of others by that insured, if the 'occurrence' which caused the 'bodily injury' or 'property damage' involved the ownership, maintenance, use or entrustment to others of any . . . 'auto"  . . . that is owned or operated by or rented or loaned to any insured." 

The FSIC policy also contained a severability clause, under which the policy applied "separately to each insured against who claim is made or suit is brought." 

Pilgrim provided auto coverage to R. Squared.  It settled the suit.  FSIC filed a declaratory judgment action, seeking a declaration that Pilgrim had no right to contribution or subrogation from it. 

In First Specialty Ins. Co. v. Pilgrim Ins. Co., 83 Mass. App. Ct. 812 (2013), the court distinguished the FSIC policy from  policies interpreted in earlier cases.  The earlier cases had similar facts.  The court found coverage in those cases because of the severability clauses of the policies. 

In First Specialty the court distinguished the policies in those earlier cases, because the FSIC policy stated that the auto exclusion applied even if the claims against any insured allege negligence in the supervision or hiring of others by that insured.  That language was sufficient to make the severability clause ineffective with respect to the exclusion.  The court speculated that the clause was added to address the earlier cases which had found coverage. 

Friday, July 5, 2013

U.S. District Court interprets arbitration clause, family member exclusion

A 13 year old died while on a fishing boat owned by his grandparents.  Shortly after the accident the grandparents filed a statement of loss with their yacht insurer, Northern Assurance. 

Northern denied the claim on the basis of an exclusion "for any liability between or among 'family members.'"  The policy defined family members as "persons  related by blood, marriage or adoption (including a ward or foster child)." 

Almost three years after the child's death, his father, who  was the previous husband of the insureds' daughter and executor of the child's estate, filed a wrongful death suit against the insureds.  The insurer filed a complaint for declaratory judgment seeking a declaration that the family member exclusion excluded coverage.

The policy contained an arbitration clause which (supposedly) required the insureds to make a demand for arbitration over "whether the claim is payable or about the amount due under the policy" within one year of the loss or damage.

My first reaction when I read the arbitration clause was:  What????  Without going into the ethics of arbitration clauses in insurance contracts, the tort statute of limitations is three years.  Often insureds will not even be aware that the insurer will dispute coverage until after suit is filed and a claim for coverage subsequently made.  If suit is filed more than a year after accident, the insureds would lose the right to dispute the insurer's coverage position.  Here, although the insureds knew shortly after the accident that the insurer intended to deny coverage, no suit was filed against them until almost three years after the loss.  It would make no sense for them to seek arbitration over policy interpretation when no suit has been filed against them. 

You would typically see such an arbitration clause with respect to first party-claims, such as if the insured's boat was damaged.  They would presumably know immediately of the loss and would be in a position to make a claim.

Indeed, there is indication in the decision that the clause applies only to first party claims.  The decision quotes the arbitration clause as "[I]f [Mr. and Mrs. Wells make a claim under this policy, and [Northern Assurance] disagree[s] about whether the claim is payable or about the amount due to [Mr. and Mrs. Wells] under the policy, the disagreement must be resolved by binding arbitration."

Unless the policy is a rare indemnity policy (in which the insurer reimburses the insureds after they have paid a loss out of pocket), in a third party claim no amount will ever be due to the insureds.  The amount due is to the claimant, in this case the grandson's estate. 

The fact that the insurer filed the declaratory judgment action indicates that it believed the arbitration provision applied only to first party claims.  Otherwise, it would have simply informed the insureds that they had waived their right to dispute its denial of coverage, and forced them to file suit if they wanted to pursue the issue.  Or they would have at least made the waiver argument in their declaratory judgment complaint. 

In Northern Assurance Co. of Am. v. Wells, 2013 WL 2250985 (D. Mass.), the insureds moved to dismiss the insurer's declaratory judgment action, arguing that the insurer was required to bring the coverage issue to arbitration.

The court held that the insureds waived their right to arbitration by failing to file a demand for arbitration within one year.  

The court then turned to the family member exclusion.  The question before it was which individual's family member status is relevant in a wrongful death case, that of the decedent or the estate's representative.  If it is the decedent's status that matters, then the family member exclusion would exclude coverage because the decedent was the grandson of the insureds.  If it is the estate's representative, then the exclusion would not apply because the representative was the insureds' former son-in-law and therefore not within the definition of the exclusion.

The court held that it is the decedent's status that matters for purpose's of the exclusion, not the estate's representative.  While I agree with the court as a matter of common sense, the definition of family member for the exclusion is sorely lacking in specificity.   Pretty much all of us are related by blood or marriage if you go back far enough.  What if the child killed had been a grand-nephew?  A second cousin?  How far does it go?